Financial Functions

Financial Functions - PMT, FV, PV, NPV,

IRR
• Investment Functions
• FV - The Excel FV function is a financial function that returns the future value of an
investment. You can use the FV function to get the future value of an investment
assuming periodic, constant payments with a constant interest rate.
• PV -The Excel PV function is a financial function that returns the present value of an
investment. You can use the PV function to get the value in today's currency of a
series of future payments, assuming periodic, constant payments and a constant
interest rate.
• NPV -The Excel NPV function is a financial function that calculates the net present
value (NPV) of an investment using a discount rate and a series of future cash flows.
• XNPV − Calculates the net present value for a schedule of cash flows that is not
necessarily periodic.
• Payment Functions – PMT
• Interest Functions – Rate
• IRR
PMT function
• The PMT function calculates the payment for a loan that has constant payments
and a constant interest rate. E.g. EMI for loan

• The PMT function has the following syntax:

• PMT(rate, nper, pv, [fv], [type])
• Rate is the interest rate for the loan.
• Nper is the total number of payments for the loan.
• Pv is the present value; also known as the principal.
• Fv is optional. It is the future value, or the balance that you want to have left after the last
payment. If fv is omitted, the fv is assumed to be zero.
• Type is optional. If omitted, it is assumed to be zero, and payments are due at the end of the
period. Use 1 in this argument if payments are due at the beginning of the period.
TIME VALUE (PV) of a single cash flow
Today (0) After 1 year [FV] TODAY(0) [PV] After 1 year
10000 (take it now
or 11000 (guaranteed) √ 11000 √
10500 11000/1.05 = 10476 (at
(at risk free rate @ 5%) discounted rate of 5%)
e.g. FD [10000*1.05]
FV
• Calculates the future value of an investment with periodic constant payments and
at a constant rate of interest. It Includes four variables

• The Future Value (FV) function in Excel 2013 is found on the Financial button’s
drop-down menu on the Ribbon’s Formulas tab  and the syntax for the same is –
• =FV(rate, nper, pmt, [pv],[type])
FV
TIME VALUE of Annuities (Multi cash Flows)
• Recurring payments, such as the rent on an apartment or interest on a bond or
installments, are sometimes referred to as "annuities.” Uniform Payments at
uniform intervals.
• Single Flow – FD ; Multiple Cash Flows – RD.
• In ordinary / Immediate annuities, payments are made at the end of each
period. For example, bonds generally pay interest at the end of every six
months. E.g. Installment after end of zero period (type 0)
• With annuities due, payments are made at the beginning of the period. E.g.
Rent, which landlords typically require at the beginning of each month, is a
common example. Or Insurance premium. (type 1)
• The future value of an annuity is the total value of payments at a specific point
in time.
• The present value is how much money would be required now to produce
those future payments.
PRESENT VALUE (PV)
• =PV(rate, nper, pmt, [fv], [type])
• The PV function uses the following arguments:
• rate (required argument) – The interest rate per compounding period. A loan with a 12%
annual interest rate and monthly required payments would have a monthly interest rate of
12%/12 or 1%. Therefore, the rate would be 1%.
• nper (required argument) – The number of payment periods. For example, a 3 year loan with
monthly payments would have 36 periods. Therefore, nper would be 36 months.
• pmt (required argument) – The fixed payment per period.
• fv (optional argument) – An investment’s future value at the end of all payment periods
(nper). If there is no input for fv, Excel will assume the input is 0.
• type (optional argument) – Type indicates when payments are issued. There are only two
inputs, 0 and 1. If type is omitted or 0 is the input, payments are made at period end. If set to
1, payments are made at period beginning.

• Notes
• An annuity consists of multiple fixed cash payments made over a specific period (e.g. car loans, mortgages)
• Cash outflows, such as deposits to a trust fund, are shown negative numbers.
• Cash inflows, such as dividends on investments, are shown as positive numbers.
NPV
• =NPV (rate, value1, [value2], ...)
• Arguments 
• rate - Discount rate over one period.
• Values are numbers representing a series of regular payments or income;
negative are payments and positive are income.
• value1 - First value(s) representing cash flows.
• value2 - [optional] Second value(s) representing cash flows.
• The NPV formula is based on future cash flows. If the first cash flow occurs
at the start of the first period, the first value must be added to the NPV
result, not included in the values arguments.
IRR
• Financial Metric to assess profitability of an investment, business or a project.
• The Excel IRR function is a financial function that returns the internal rate of return (IRR) for
a series of cash flows that occur at regular intervals.
=IRR (values, [guess])
• Arguments 
• values - Array or reference to cells that contain values.
• guess - [optional] An estimate for expected IRR. Default is .1 (10%).
• The internal rate of return (IRR) is the interest rate received for an investment with
payments and income occurring at regular intervals (i.e. monthly, annual). Payments are
expressed as negative values and income as positive values. Amounts can vary, but intervals
need to be the same. The first value is negative, since it represents an outflow.
• The internal rate of return is the discount rate that makes the net present value equal to
zero.